The Federal Reserve is investigating whether traders at the world’s biggest banks rigged benchmark currency rates, raising the risk that firms will be penalized for lax controls as regulators look for wrongdoing.
The Fed, which supervises U.S. bank holding companies, is among authorities from London to Washington probing whether traders shared information that may have let them manipulate prices in the $5.3 trillion-a-day foreign-exchange market to maximize their profits, said a person with direct knowledge of the matter, asking not to be named because it’s confidential. The central bank’s involvement in the probe hasn’t been previously reported.
“The Fed has discretion whether to and how much to fine the banks if deficient controls or lack of supervision resulted in traders at these banks manipulating currency rates,” said Jacob S. Frenkel, a former federal prosecutor and now a lawyer at Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland.
The Fed punished firms for internal-control lapses last year as it worked with state and federal authorities on cases involving Iranian sanctions and botched derivatives bets. The foreign-exchange inquiry looks at benchmark WM/Reuters rates used by companies and investors around the world.
Those rates are determined by trades executed in a minute-long period called “the fix” at 4 p.m. in London each day. By concentrating orders in the moments before and during the 60- second window, traders can push the rate up or down, a process known in the industry as “banging the close.”
Deutsche Bank AG, Citigroup Inc., Barclays Plc and UBS AG control more than half of all foreign-exchange trading, according to a May survey by Euromoney Institutional Investor.
Barbara Hagenbaugh, a Fed spokeswoman in Washington, declined to comment on the probes.
Bloomberg News reported in June that traders at banks have been manipulating spot foreign-exchange rates for at least a decade, affecting the value of funds and derivatives. Britain’s Financial Conduct Authority, the Swiss Competition Commission and the U.S. Justice Department also are investigating.
At least a dozen banks have been contacted by authorities, and at least 12 currency traders have been suspended or put on leave. Companies including Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc have announced their own internal reviews of the matter.
Citigroup said last week it fired Rohan Ramchandani, who was head of European spot trading. Ramchandani was part of a message group other traders in the industry referred to as “The Cartel,” which is under investigation. He had been on leave from the New York-based firm for almost three months. Ramchandani didn’t respond to messages left on his mobile telephone, and his lawyer didn’t return a call to his office.